Sunday, October 28, 2012

Cash Remains the Best Option This Week for Several Reasons

After spending the last week in cash other than a brief dip into HOV for a very, very small loss, I see absolutely no reason to change course entering this week for several reasons.  Technically, the distribution day count remains high and the bulls have done nothing that suggests they are ready to make a move.  Perhaps if they can get the indexes over the nine day EMA I would pay attention, but until that happens, why guess?  Yes, the market is a bit oversold but really not stretched in any meaningful way with the McClellan only at -133.  I would need to see much worse to get interested in playing a potential reflex bounce.

A more important reason for me to stay in cash this week, however, is the situation on the East Coast with "stormaggedon".  I really and truly hope that the meteorologists are blowing this whole thing out of proportion but when I see on Twitter that one of the main personalities on the Weather Channel (Jim Cantore) say that this could possibly be the biggest weather event of his lifetime, you pay attention.  Living in Pittsburgh, I hopefully won't be hit too bad by Sandy but with 2-4 inches of rain possible along with sustained 40-50 mph winds, power outages are certainly a possibility.  I personally don't feel comfortable trading if I can't see charts and don't have access to the internet.  Making sure stops are set and scanning for new stocks will be the least of my concerns if we happen to lose power, especially with a five year old and a three year old. 

In addition, although the electronic market will remain open tomorrow, I would be surprised if volume is not low tomorrow.  This isn't just because the trading floors will be closed - rather I wonder how many traders are going to be going into work along the coast to trade and how active they will actually be, especially in a weak market.  Depending on the outcome of this storm, we may see very low volume all week.  It will likely be similar to holiday trading which is typically volatile and difficult.   If this was a booming bear market, I might be interested.   Since we are smack-dab in the middle of a correction, sitting out is just fine with me.  Just because you will not be physically affected by the storm doesn't mean your trading might not be affected. 

Best of luck to all of those along the coast dealing with this storm and its possible outcomes.  Although I am not looking forward to the massive rains and heavy winds, I feel lucky to not be in New York, Boston, or any of the other coastal cities that will feel the brunt of the storm.  Stay safe. 

Sunday, October 21, 2012

Could Bounce A Bit, But Certainly Defense is Name of the Game For Now

So much for that "push" from the bulls, huh?   Last week I was cautiously bullish because I saw some good signs but any hope that the bulls had was quickly nixed based on Thursday and Friday's awful sessions.  Thursday saw the Nasdaq break below its fifty day moving average on much heavier volume and Friday brought a nasty selloff of over 2% on the heaviest downside volume since May 18th (which likely was an options expiration day anyway).   The Nasdaq is now up to six or seven distribution days in the last twenty sessions depending on what you count as distribution, but either number is very bad and typically leads to further correction.  That looks like what is coming.

Nasdaq

The Russell 2000 looks just slightly better than the Nasdaq but that's like saying Roseanne Barr is slightly more attractive than Rosie O'Donnell.   Both are still very ugly and so are the charts of the two most important indexes in my opinion when looking for furture market strength. 

Russell 2000

The S&P is holding up better than the other two because of relative strength in financials, homebuilders, and some commodity areas (namely coal).   It is still holding the breakout area of 1422 from early September but if that breaks, watch out.

S&P 500

I made a mistake getting away from my shorts early in the week because in hindsight, the breadth numbers I follow never went anywhere near bullish.   In fact, they've been bearish since September 26 and it will take several 1-2% positive sessions on heavier volume for this breadth ratio to push higher.   I didn't end up getting hurt terribly with my few longs but my account is off about 4% from highs in early October.   Right now I am in cash and will likely stay there for perhaps a while.


Looking ahead, I am kind of expecting a bounce early in the week simply because everyone now seems to be fully expecting a correction.  It's hard not to with the action we saw late last week, but the market always likes to screw with traders so a bounce that could set up a bear flag is a good possibility in my mind early this week.  I don't plan on shorting until a bounce comes but don't feel real comfortable about swinging some longs here, so like I said above, cash it likely is.

My main watchlist has been almost wiped out over the past week but there are a few remaining pockets of strength in this market.  Homebuilders remain very strong and were barely hit on Friday all things considered.   This is an area to watch going forward for both strength and weakness.  When they start coming for the last of the leaders, it is a sign that a true, meaningful correction is taking place.

Silver stood out to me as a sector to watch here because I saw several silver names that seemed to be holding up better than the commodity.   Just something to keep an eye on going forward.

Financials also continue to act well overall with BAC being the leader.  If this gets hit...well, another big warning sign going forward.

BAC
Charts from TC2000, Courtesy of Worden Brothers, Inc.

Going forward this week, the market certainly flashed some major warning signs the past and you must respect them.  Although I think we will see a relief bounce attempt early in the week, defense is the name of the game until the market proves it's ready to move higher.  You have to look for several heavier volume up sessions - if they don't come, continue to play defense.   Oh yeah - we still have lots of earnings this week so that can always thrown a wrench into things (see GOOG, Thursday, 12:00 ish).   Good luck - looks like we all need some right now.



Monday, October 15, 2012

Bulls Have a Chance Here But They Have to Push

We finally saw a bounce attempt today that didn't meet immediate selling.  So is this the start of something or just another tease?  It's really too early to tell.  The S&P is holding up well and is clearly the leading index at the current time, something I never like seeing.   That doesn't mean however that the market can't move higher.  

S&P 500

Ideally, I would like to see the Nasdaq and small caps lead the market as that is where the high-beta and high-growth names lie, but they certainly are not leading at this point.  Until the Nasdaq clears the trio of moving averages directly overhead, it is hard to get very bullish on this market.  I am not discounting the possibility of the market rallying, but I need to see some follow-through on today's higher close, something that we haven't seen from the bulls since early September.

Nasdaq

I saw virtually nothing from my scans this weekend so I went into today with very few names on my watchlist.  I currently have two short ETFs with stops set.  If the market rallies further, I will be out of these with some small losses and I am OK with that.  My main breadth signal turned bearish over two weeks ago and has shown no signs of changing, so I have to follow what I see.  

While I don't think we have put a significant top in over the past month or so, we are in a slight correction that could continue for longer than some think, so I am playing it accordingly.   If I do see the market move above the overhead levels mentioned above, I will go back to playing longs only.   That is always my preference, as much more money can be made on the long side and it is much "easier" to play.  I actually added a long position today at the close as a hedge and will be watching the charts below closely over the next few days. 

Housing is very strong and one of the few areas that was on my watchlist today.  Of course, I ignored them and passed on KBH and PHM, but they are worth watching as they seem to be a leading industry right now.

Housing is Strong

I did enter one long today off of its 50 day moving average.  There are some others looking similar.

ANN
URBN

Coal has been strong but ideally I would like to see some more rest in this group.  I saw some steel names too so perhaps commodities/materials will pick up in general.

ACI
SID

Other names I am watching are below.   Again, it all depends on the bulls showing some sort of continued strength tomorrow.  One day does not make a rally, so tomorrow will be important.  Good luck.
PCYC
NSM
SRPT
WTR
All Charts from TC2000, Courtesy of Worden Brothers, Inc.

Monday, October 8, 2012

Still a Tough Market To Call

Let me start this post by saying I exited all longs Friday and went into a QID position which worked well today. The market is no doubt struggling here.  Although the S&P is holding up, both the Russell and Nasdaq are starting to break down from bear flags and AAPL broke down through some very key levels today.   Without AAPL cooperating, I find it hard to see the bulls getting their mojo back anytime soon, at least as strong a mojo that they had from August to mid-September.

At the same time, I am not super-bearish at this point.  If we head lower tomorrow, I will probably close my QID swing and either stay in cash or look for some short-term longs.  I would be more bearish from a longer-term perspective if the bears could have run with things the past few days but they just really didn't push.   There have been several times over the past two weeks that the market gapped up and then started selling off mid-morning, but none of those selloffs felt that severe to me.  They certainly weren't bullish, but they left me feeling like the bears should have done more.  Volume wasn't heavy today either.  We'll see going forward I guess but I think it's a strong possibility that we are just stuck in a range here and will continue to be so for the foreseeable future.  

In a market where neither the bears or bulls have a clear advantage, picking stocks becomes harder.  Individual stocks continue to work on a case by case basis - you just have to be a bit lucky with which ones you choose.   These are the charts I am watching for the rest of this week - didn't see much over the weekend but more showed up tonight.   I have a small position in SRPT after today as I expect a bounce attempt sometime soon (and if it doesn't come I will quickly be out) but that's it.  If the market shows any strength, I will look at these charts for triggers.  Good luck this week - it looks like it will be a challenging one. 

ARNA
 CHMT
 CQB
MRO
 OZM
 PCRX
 RIMM
 SONC
 SVN
 SWHC
 VSI
Charts from TC2000, Courtesy of Worden Brothers, Inc.